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Alexandria Real Estate Equities Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: May 4, 2012 04:32PM

Alexandria Real Estate Equities Inc. (ARE) filed Quarterly Report for the period ended 2012-03-31. Alexandria Real has a market cap of $4.63 billion; its shares were traded at around $74.33 with a P/E ratio of 16.6 and P/S ratio of 8.1. The dividend yield of Alexandria Real stocks is 2.6%. Alexandria Real had an annual average earning growth of 2% over the past 10 years.



Highlight of Business Operations:

In March 2012, we contributed our 55% ownership interest in a land parcel aggregating 414,000 developable square feet in the Longwood Medical Area into a newly formed joint venture (the “Restated JV”) with National Development and Charles River Realty Investors, and admitted as a 50% member, Clarion Partners, LLC, resulting in a reduction of our ownership interest from 55% to 27.5%. The transfer of 27.5% of our 55% ownership interest to Clarion Partners, LLC, in this real estate venture is accounted for as an in substance partial sale of an interest in the underlying real estate. In connection with the sale of 27.5% of our 55% ownership interest in the land parcel, we received a special distribution of approximately $22.3 million which included the recognition of a $1.9 million gain on sale of land and approximately $5.4 million from our share of loan refinancing proceeds. The land parcel we sold during the three months ended March 31, 2012, did not meet the criteria for discontinued operations since the parcel did not have any significant operations prior to disposition. Pursuant to the presentation and disclosure literature on gains/losses on sales or disposals by REITs required by the SEC, gains or losses on sales or disposals by a REIT that do not qualify as discontinued operations are classified below income from discontinued operations in the income statement. Accordingly for the three months ended March 31, 2012, we classified the $1.9 million gain on sale of land below income from discontinued operations, net, in the condensed consolidated statements of income. Our 27.5% share of the land was sold at approximately $31 million (including closing costs), or approximately $275 per developable square foot. Upon formation of the Restated JV, the existing $38.4 million non-recourse secured loan was refinanced with a seven-year (including two one-year extension options) non-recourse $213 million construction loan with initial loan proceeds of $50 million. We do not expect capital contributions through the completion of the project to exceed the approximate $22.3 million in net proceeds received in this transaction. Construction of this $350 million project is expected to commence early in the second quarter of 2012 and the project is 37% pre-leased to Dana-Farber Cancer Institute, Inc. In addition, we expect to earn development and other fees of approximately $3.5 million through 2015, and recurring annual property management fees thereafter.

In March 2012, we contributed our 55% ownership interest in a land parcel aggregating 414,000 developable square feet in the Longwood Medical Area into a newly formed joint venture (the “Restated JV”) with National Development and Charles River Realty Investors, and admitted as a 50% member, Clarion Partners, LLC, resulting in a reduction of our ownership interest from 55% to 27.5%. The transfer of 27.5% of our 55% ownership interest to Clarion Partners, LLC, in this real estate venture is accounted for as an in substance partial sale of an interest in the underlying real estate. In connection with the sale of 27.5% of our 55% ownership interest in the land parcel, we received a special distribution of approximately $22.3 million which included the recognition of a $1.9 million gain on sale of land and approximately $5.4 million from our share of loan refinancing proceeds. The land parcel we sold during the three months ended March 31, 2012, did not meet the criteria for discontinued operations since the parcel did not have any significant operations prior to disposition. Pursuant to the presentation and disclosure literature on gains/losses on sales or disposals by REITs required by the SEC, gains or losses on sales or disposals by a REIT that do not qualify as discontinued operations are classified below income from discontinued operations in the income statement. Accordingly for the three months ended March 31, 2012, we classified the $1.9 million gain on sale of land below income from discontinued operations, net, in the condensed consolidated statements of income. Our 27.5% share of the land was sold at approximately $31 million (including closing costs), or approximately $275 per developable square foot. Upon formation of the Restated JV, the existing $38.4 million non-recourse secured loan was refinanced with a seven-year (including two one-year extension options) non-recourse $213 million construction loan with initial loan proceeds of $50 million. We do not expect capital contributions through the completion of the project to exceed the approximate $22.3 million in net proceeds received in this transaction. Construction of this $350 million project is expected to commence early in the second quarter of 2012 and the project is 37% pre-leased to Dana-Farber Cancer Institute, Inc. In addition, we expect to earn development and other fees of approximately $3.5 million through 2015, and recurring annual property management fees thereafter.

In February 2012, we acquired 6 Davis Drive, a 100,000 rentable square foot life science laboratory building located in the Research Triangle Park market, for approximately $20 million. The building is 100% leased to a non-profit research institute. The property also includes opportunities to develop at least three additional build-to-suit or multi-tenant buildings aggregating at least an additional 450,000 rentable square feet in an excellent location. We expect to achieve a stabilized yield on cost on a cash and GAAP basis for the operating property of approximately 8.4% and 8.9%, respectively. Stabilized yield on cost is calculated as the quotient of net operating income and our investment in the property at stabilization (“Stabilized Yield”). These yields assume a purchase price allocation of $11.8 million to the 100,000 rentable square foot operating property and $8.3 million to the land for future additional buildings.

Projected interest expense, net, and related capitalized interest for the year ended December 31, 2012, is expected to decrease from our prior guidance reported on February 22, 2012, by approximately $2.0 million and $1.5 million, respectively, primarily due to the amendment of our $1.5 billion unsecured senior line of credit, which among other changes, reduced the Applicable Margin for LIBOR borrowings under the unsecured senior line of credit to 1.20%, down from 2.40% in effect immediately prior to the amendment. Certain key assumptions regarding our projected sources and uses of capital are included on page 63. We expect general and administrative expenses for the year ended December 31, 2012, to increase from 12% to 14% over the year ended December 31, 2011, compared to our prior guidance of up 5% to 8%. The increase is primarily due to the timing of hiring additional employees related to the growth in both the depth and breadth of our operations in multiple markets, and other compensation-related expenses. Since December 31, 2011, our number of employees has increased by approximately 6%. As a percentage of total revenues, we expect general and administrative expenses for the year ended December 31, 2012, to be consistent with the year ended December 31, 2011, at approximately 7% to 8% of total revenues.

Net cash provided by operating activities for the three months ended March 31, 2012, increased by $5.2 million, or 12%, to $49.7 million, compared to $44.5 million for the three months ended March 31, 2011. The increase resulted primarily from an increase in net operating income from completed and leased development and redevelopment spaces, and increased revenues from three operating properties that were acquired subsequent to January 1, 2011. Net cash provided by operating activities before changes in assets and liabilities for the three months ended March 31, 2012, increased by $3.5 million, to $69.5 million, compared to $66.0 million for the three months ended March 31, 2011. We believe our cash flows from operating activities provide a stable source of cash to fund operating expenses. As of March 31, 2012, approximately 95% of our leases (on a rentable square footage basis) were triple net leases, requiring tenants to pay substantially all real estate taxes, insurance, utilities, common area expenses, and other operating expenses (including increases thereto) in addition to base rent. Our average occupancy rate for operating properties as of March 31, 2012, and December 31 of each year from 1998 to 2011 was approximately 95.1%. Our average occupancy rate for operating and redevelopment properties as of March 31, 2012, and December 31 of each year from 1998 to 2011 was approximately 89.1%.

Read the The complete Report



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